Fiduciary Rule

Commission-based IRA resurgence?

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Merrill Lynch reportedly reverses policy on banning IRA commissions

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Wells Fargo reportedly drops plans to use T shares in retirement accounts

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Federal District Court Declines To Exercise Jurisdiction Over Massachusetts’ Action Against Scottrade

On August 16, 2018, the United States District Court for the District of Massachusetts granted a motion for remand filed by the Enforcement Section of the Massachusetts Securities Division of the Office of the Secretary of the Commonwealth (“Enforcement Section”) in Enforcement Section’s action against Scottrade, Inc. (“Scottrade”).  By way of background, the Enforcement Division commenced an action against Scottrade in the Massachusetts Securities Division in February 2018.  In the Complaint, the Enforcement Division alleged that Scottrade violated internal procedures Scottrade enacted to comply with the impartial conduct standards of the DOL’s “fiduciary rule” by conducting incentivized sales contests.  According to the Enforcement Section, Scottrade’s failure to comply with its internal procedures amounted to a violation of two Massachusetts statutes.  Those statutes prohibit “unethical or dishonest conduct or practices” in the securities business and require an entities in the securities industry to “reasonably . . . supervise agents, investment adviser representatives or other employees.”

Scottrade removed the action from the Securities Division to federal district court on federal question grounds.  Distilled to its essence, Scottrade’s position was that it could remove the Enforcement Division’s complaint because it raised a question that “arises under and is governed by ERISA.” Specifically, Scottrade argued that ERISA preempted the MA Enforcement Division’s complaint.

William F. Galvin,
Secretary of the Commonwealth of Massachusetts

In remanding the action, the district court first noted that the case did not require the resolution of any issues under ERISA.  The court held that the claims did not implicate ERISA or the DOL’s fiduciary rule because the only determination that would need to be made is whether Scottrade violated its internal policies and, if so, whether those violations were illegal under Massachusetts law.  The district court went on to further hold that ERISA preemption was not satisfied because the Enforcement Division was not within the class of persons who are eligible to bring claims under ERISA.  Finally, the district court held that an action before the Securities Division was not brought in “state court,” as required to trigger removal under the federal removal statute, because the Securities Division is not a “court.”

While Scottrade’s arguments presented some relatively novel legal issues regarding removal and federal court jurisdiction, the outcome is not terribly surprising.  The Enforcement Division’s claims, although based on policies adopted in response to the DOL’s fiduciary rule, do not require a court to address whether ERISA or the fiduciary rule were violated in resolving the case on the merits.  Rather, as the district court held, the adjudication of the claims only requires a determination as to whether Scottrade’s alleged violations of its internal procedures constitutes a violation of the Massachusetts statutes the Enforcement Division is relying upon.

In terms of next steps, it is likely that the case will proceed before the Securities Division.  Any attempt by Scottrade to appeal the remand order is unlikely to succeed.  An appellate court can review an order for remand only under very limited circumstances, none of which appear to be present here.

William Mandia represents financial institutions and insurers in complex commercial and class action litigation. He regularly defends and advises life insurers, intermediaries, banks, broker-dealers, investment advisers, and other financial services providers in connection with sales practices claims arising from a wide range of financial and life insurance products, including, but not limited to, claims for alleged breach of fiduciary duty, fraud, and violations of state consumer protection laws.

George Michael Gerstein discusses additional DOL guidance and state activity with Investment Advisor magazine

I remarked to Melanie Waddell that the “nature and timing” of the promised DOL guidance in the aftermath of the Fiduciary Rule remains uncertain and discussed what we can expect from the states now that we have a better sense of where they may be going. The interview is in the August edition of Investment Advisor magazine.

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Bill Mandia on Latest DOL Fiduciary Rule Intervention Attempt

When the Fifth Circuit finally entered its mandate and judgment on June 21, 2018 “vacat[ing] the Fiduciary Rule in toto”, the DOL’s fiduciary rule, as a matter of law, officially became a dead letter.  But on remand, the United States District Court for the Northern District of Texas created a narrow opening through which, in theory, the parties who unsuccessfully sought to intervene in the Fifth Circuit could make yet another attempt to save the fiduciary rule.  Specifically, the district court issued an Order on June 28, 2018 requiring any party seeking “further relief” to notify the court by July 12, 2018.  The court further stated that “[i]f no notice is received, the case will be dismissed with prejudice and without further notice.”  The District Court did not specify any “further relief” that it believes could be sought, but the court may want to determine whether the unsuccessful attempted intervenors in the Fifth Circuit will file a petition for a writ of certiorari with the United States Supreme Court.  The deadline for the attempted  intervenors to do so is July 31, 2018.

The odds that the Supreme Court would grant certiorari to the attempted intervenors are extremely long because, among other reasons, the petitions to intervene were not well founded, as the Fifth Circuit recognized.  Nevertheless, the parties, including the DOL, in Thrivent Financial for Lutherans v. R. Alexander Acosta, et al., U.S.D.C. Minn., Civ. A. No. 16-cv-03289, have asked the United States District Court for the District of Minnesota to continue a previously entered stay in that litigation pending the July 12 deadline set by the United States District Court for the Northern District of Texas.  While it is highly unlikely that a petition for certiorari by the attempted intervenors will succeed, they may nonetheless seek further review as noted by the parties in Thrivent Financial.  It is important, however, to keep in mind that the fiduciary rule should still be deemed vacated, even if a petition for certiorari is filed, because the Fifth Circuit’s mandate remains effective absent a stay, which seems extremely unlikely at this point.  We will have a further update on June 12 regarding whether the attempted intervenors respond to the North District of Texas’ Order.

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

George Michael Gerstein to Compliance Reporter: Likely a ‘Holding Pattern’ for Now on Compensation Changes in Wake of Fiduciary Rule Sunset

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Jim Podheiser on state of play re. prohibited transaction exemption relief for investment advice

“With the DOL’s fiduciary rule and the new and amended exemptions associated therewith (the “Rule”) officially vacated, many are wondering about the implications of the DOL’s last statement of its (and the IRS’) temporary enforcement policy (FAB 2018-02).  In the absence of the Rule we are back to the old “5-part test” for determining whether one is an investment advice fiduciary.  If one is an investment advice fiduciary under the 5-part test, the temporary enforcement policy would seem to provide what is the equivalent of a prohibited transaction exemption that did not exist prior to the Rule (for example, to permit the investment advice fiduciary to receive third-party compensation assuming the “impartial conduct standards” are satisfied).  Whether the DOL would agree with this analysis in all cases and how long this temporary enforcement policy will be maintained remains to be seen.”

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

State enforcement remains risk in wake of DOL Fiduciary Rule sunset

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Fifth Circuit’s Ruling – Nationwide Effect

Per Bill Mandia, “I don’t see there being any question about the nationwide impact.  The Fifth Circuit determined that the DOL’s actions were not a proper exercise of its statutory authority.  That ruling should, under the Administrative Procedures Act, vacate the rule nationwide.  The mandate is drafted in that manner because it provides that the Fifth Circuit “vacat[ed] the Fiduciary Rule in toto.””

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.